US political risks may undermine USD, generate volatility in riskier assets - AmpGFX

In view of Greg Gibbs, Analyst at Amplifying Global FX Capital, to date, political risk has appeared to have a more negative impact on the USD than US equities or broader global risk appetite. 

Key Quotes

“In fact, the weaker USD combined with ongoing strength in the US and global economy may have reinforced demand for EM equities and currencies.”

“However, there are a number of reasons to be less sure that increasing political risk in the US will continue to support EM currencies and global equities.”

“For one, Trump’s protectionist policies are now a key focus of the administration.  This poses clear risks for emerging markets.  It may also pose a risk for the EUR that has been very strong in the last year, given Europe is also in the administration's trade cross-hairs.”

“A second reason is that the equity market has been more volatile since early-Feb, and global investors may have become more permanently attune to risk scenarios.  It might not be so easy for the market to separate the political risk in the US from the strong underlying trends in the US and global economy.”

“A more mixed result for EM and global equities could tend to support the JPY and gold against the USD that may continue to be undermined by political risk.”